Warning! Closing credit cards you don’t use could lower your credit score.
Do You Have Unused Cards Like Jesse? Learn From His Mistake
How many credit cards do you own? Jesse had six credit cards: Alaska Air Visa, MasterCard, Sears, Home Depot, Paypal, and Target.
He read that only three credit accounts are needed to qualify for the best conventional loan. He also read that three credit cards are optimal for achieving a high credit score. So he took a look inside his wallet to see which cards he could get rid of without missing anything.
He quickly identified Sears, Home Depot, and Target as unnecessary. He almost always used his Visa for everything anyway, because he liked racking up the points for free flights.
So, he called customer service at the three store cards and instructed them to close the cards “at consumer’s request.”
Consequently, his credit score dropped by 15 points. Jesse was stunned and dismayed!
Length of Credit History Accounts for 15% of Your Score
Jesse’s Sears and Target cards were five years old. His Home Depot card was four-and-a-half years old.
His Visa and Paypal cards were both less than two years old.
By closing out three long-standing cards, Jesse had lost points for longevity.
What Should You Do With Old Credit Cards You “Never” Use?
If you have a major credit card with a bank or credit union, you should use that for a small random purchase (grocery item, gasoline) once every quarter to keep it active and prevent the bank or credit union for shutting it down.
On the other hand, individual store cards remain open indefinitely (most of the time). Even if you don’t shop at Sears for three years, Sears keeps your credit line open in hopes that you might stop in and shop a sale.
There is no harm to your score in keeping old, unused cards open.
If you don’t want to handle the cards, cut them up, shred them, or burn them; but whatever you do, don’t call and instruct the creditor to shut them down! Keep those “long history” cards working for your credit score.
For more vital information about building A+ credit in the shortest amount of time, see here.
Thank you for reading this post. My aim is to help good folks achieve A credit and gain respect in the community.
National Credit Care did a study and discovered that people with low credit scores paid on average $200 more per month for auto financing than those with top tier credit.
Let’s look at how much more your car costs based on the financing terms:
$200 per month x 60 months = $12,000 more for the car
$200 per month x 36 months = $7,200 more for the car
How does that make you feel to pay $12,000 more than the last customer, all because of that three-digit score called FICO score or credit score?
What could you do with that extra $7,000 to $12,000 if you weren’t shelling it out in interest to the wealthy finance company?
But that’s not all!
On top of paying more in financing, you also pay a higher insurance premium for having a low score — even if you have a perfect driving record.
That’s right! Insurance companies also check credit scores as part of their determination on how much to charge you for insurance.
And don’t get me started on credit card interest rates…! I’ll save that for another article.
Take control of your credit! Review and repair. Even if you can’t fix everything, you can raise your score and keep more of your hard-earned money in your own pocket.
I don’t know about you, but I can think of a lot things to do with $7,200 to $12,000! Grab yourself a copy of Repair Your Credit Like the Pros here and get started today.
If you know someone who is thinking of buying an automobile, please pass on this information to them, because no one needs to throw away good money on higher interest rates.
Right now, your banking habits — how often you deposit money, your account balance, overdrafts — do not affect your credit score. In fact, the three big credit bureaus can’t see and don’t know about such things.
But all that might change this summer.
Experian is working with a data company called Finicity to test a new credit scoring system they call Ultra Credit Scores. If they like the results, then they may roll it out nationally as early as this summer.
How Ultra Credit Score Works
If you give Experian permission, it will access your bank account to collect additional data for credit scoring purposes. What they want to see is no overdrafts, at least $400 as an account balance average for three months, and consistent deposits going into your account.
For example, if your employer automatically deposits your check every two weeks, that’s good. On the other hand, if you deposit your own checks and do so sporadically because you keep cash out for spending and don’t always get to the bank right away, then that is deemed as inconsistent and won’t gain you points.
If you have a nice savings account, that is good. If you have an occasional overdraft, that will hurt your score.
This is all new. Right now, the credit bureaus do not have access to your bank records.
Invasive or a Good Idea?
The idea behind Ultra Credit Scores (so they say) is that it will help young people starting out who don’t have much credit established to gain a good score. But hold on!
If you turned 18 yesterday, you can build a top tier score simply by following best practices without letting the credit bureaus spy on your personal banking habits. The same principle applies to older adults who have thin credit. Start today and build a good credit profile for yourself. It’s not hard!
I suppose if you have thin (not much) credit and you’re in a super hurry to buy a house right now, then the Ultra Credit Score system could help you. Frankly, I think there are a whole lot of Americans who prefer to keep their privacy and will deem it invasive.
Don’t Worry: They Can’t Spy If You Don’t Give Them Permission
Experian cannot access your banking information if you don’t give them permission, so don’t freak out: you are still in control.
Also, Experian is the only one of the three credit bureaus who is testing Ultra Credit Scores. If it ends up bringing them more revenue, then Equifax and TransUnion might follow suit; at this point, we don’t know.
Do You Want to Ensure Yourself of Having Top Tier Credit?
All the information that the professionals know about getting that 740 to 800 credit score is revealed in Build and Protect Your Credit Like the Pros. You can take a look here.
With a top tier score, you will save money on insurance premiums, interest rates, and favorably impress employers. $8.99 ($5.99 Kindle) is a tiny amount to spend to save hundreds and even thousands of dollars.
Thank you for reading my post. I hope you will share it on social media so others can learn about the new credit scoring system.
This week the big three reporting agencies TransUnion, Equifax and
Experian spent six hours giving testimony to Congress. They were asked questions regarding every aspect of their companies ranging from dispute resolution practices, cyber-security and the fact they have no other competition in their space.
With Maxine Waters, a long time consumer advocate at the helm of the financial services committee, you can bet the farm that this is not going to be a comfortable year for the bureaus.
Waters has already introduced a bill that would require yet another overhaul of the credit reporting system as well as amendments to the Fair Credit Reporting Act. Subscribe for updated information as it becomes available.
Many thanks to Chad Kusner, Credit Repair Resources LLC, for this information. CCCR offers a credit report analysis and consultation service for people who need credit advice without a full credit repair. More info here.
Build and Protect Your Credit Like the Pros guides you to achieving A+ credit in the shortest time possible.
Having a top tier credit score saves you money on insurance premiums, interest rates, and gains you respect in the community.
“Must have” for every American. Available on Amazon here.
What you don’t know about collections can hurt your credit score.
Here are two facts most people don’t know:
1) The balance does not affect your credit score.
Whether you owe $100 or $10,000, it makes no difference in your credit score. A collection is a collection is a collection. Why?
Because a large balance might indicate a person has a high income; whereas, a small balance might indicate a person had a low credit card limit and therefore has a low income. Since it is illegal to consider income for credit scoring, the credit reporting agencies are barred from making a difference in score due to the balance.
This is important to know, because if you’re thinking your score will go up as you pay down the balance, you are in for a disappointment. The only way you will get your score to go up is by the collection aging older and older, until eventually it is off your report. (Unless you get it removed early.)
2) Paying off a collection will lower your credit score.
This is counter-intuitive and unfair. Nevertheless, that is the way the system is set up. As per above, your score cannot go up by lowering your balance on a collection account. On top of that, when you make a payment it updates the “Date of Last Activity” (DLA) to current, and that reduces your score.
A lot of good people try to do the right thing by paying off an old collection account — and then they are penalized for it!
The Best Way to Handle a Collection Account
If your collection account is old, then let it age off.
If your collection account is medical or less than $2,000, then you will not be required to pay it off in order to get approved for a home loan.
If your collection account is large and/or the collector is contacting you for payment, then negotiate a settlement with the stipulation that it will be removed from your credit report when it has been paid in full as agreed.
If you receive notice of legal action, do not ignore it! Work out a settlement, or if necessary, go to the court hearing and explain your situation. If you blow off a court hearing, then you automatically lose by default, so that is the worst thing you could do.
There are reputable, licensed credit repair companies that can help you with negotiations and legal issues. I do not recommend attorneys or lawyers (especially if they advertise all over the Internet–those are usually the worst). I recommend credit repair specialists who have over 10 years’ experience, because, in my opinion, they work faster, better, efficiently, and get better results.
Thank you for reading and passing on this info to others via shares.
Experian has announced that it wants access to view people’s bank accounts. It wants to see who you’re making debit deposits to, who you’re paying, and when. It wants to look at items that do not report to the credit bureaus.
For instance, Experian wants to look at your cell phone payment, your utility bill, your Xfinity bill, and possibly your rent payment.
They’re calling this new program “Experian Boost.”
Their excuse for gaining this extra access into your personal life is that they claim it will improve credit scores for people who have thin credit, meaning not much credit.
But here’s the problem…
The Experian Boost program uses the FICO Score 8 model, which mortgage lenders consider outdated and don’t even use anymore. Mortgage companies are using FICO10. So this spy action won’t help you qualify to buy a home.
The good news…
is that you must give Experian permission in order for them to access your bank accounts. No permission from you = no spying by Experian.
This new “pioneer program” (as Experian likes to brag) is scheduled to come out in 2019.
Build your credit profile in the very best way so that you achieve top tier credit, gain respect from everyone you do business with, and save thousands of dollars on everything from auto insurance to a home loan.
Reading this book will take you from beginner status to expert. It starts with the basic of how to get your first credit card and proceeds to insider information not many people outside the industry know. When you finish, it will be like having a college degree in credit, if there were such a thing!
It’s not enough to have top credit. You must also protect your credit and finances, because there are more scams, frauds, and schemes now than ever before. Get the tips you need for protecting yourself from rip-off artists.
Makes a good gift for young adults, immigrants to the U.S., and anyone else who wants to improve their expertise on credit scoring.
Paperback available today for only $8.99. Kindle is $5.99.
Some accounts influence your credit score more than others. When you think about it, it makes perfect sense.
Having a $300,000 mortgage is a greater responsibility than having a credit card.
Here is the order of importance/influence of type of account:
- Mortgage loans give you the most points. Always pay your home loan first and foremost. No exceptions. If you get in trouble and can’t pay all your bills, pay your mortgage on time, every time. Protect your home and your credit.
- Installment loans such as auto loans and student loans. An installment loan has a set payment and ending date. These count second for influence and importance.
- Revolving credit cards. This is ongoing credit. It is of least importance, but it is still important. Pay on time if you want a good credit score. If your score is 800 and you have one late payment on a credit card, your score can plummet by 100 points.
- Hard money loans are horrid and will negatively impact your credit score. Avoid hard money loans. These are finance company loans, cash advance loans, and payday loans that carry a high interest rate. They are rip-offs. They hurt your credit score, even if you pay on time, because only people who are “hard up” take a hard money loan.
When you understand credit, you are not at the mercy of the credit bureaus — you are in control. Create a good credit history and earn a top tier score. That way, you will save tens of thousands of dollars on everything from your mortgage to your insurance premiums. And, gain self-respect and the respect of the financial community.
Coming this fall, my new book, Build and Protect Your Credit Like the Pros. More information coming later, and not to be missed. Feel free to subscribe. I post about once/week.
Which will cost you more: Having a low credit score or getting charged with Driving While Drunk?
If you’re thinking like an insurance company, you’re going to say the low credit score is worse than the DWI. And you’re going to charge your drivers higher premiums for it.
Is that reasonable? I don’t know about you, but I’d rather be a passenger in a car with a driver who had a low score than with an intoxicated driver.
Look at this comparison of auto insurance costs for an average new insurance customer*:
Low Credit Score: $1,521 insurance premium
High Credit Score but with a DWI: $1,097 insurance premium
The person with a low credit score pays $424 more than the person with the DWI.
Keep in mind that you can have a low score simply by carrying too much credit — even if all your payments are made on time.
I have seen credit reports for physicians, dentists, and attorneys who had low scores due to carrying a lot of credit. These professionals had high incomes and could easily afford their credit. They made all payments as agreed. But, according to statistics, they have higher insurance premiums than the person driving drunk!
Does this make sense to you? I’d love to hear what you think.
In the meantime, it cannot be overstated how important it is to have a good credit score. A low score will cost you more in every financial arena, from buying a home to insurance premiums to credit card rates.
If your score is below 740, you will be wise to examine your report to determine how you can improve it and save yourself a bundle of money.
*Thanks to Chad Kusner, president of Credit Repair Resources, Inc. for the statistics.
Some of my book readers have been asking me if they should close out their extra credit cards. They may have a Visa, MasterCard, Sears, Target, Macys, Chevron, and Walmart card. They do not need all of those cards, because Visa and MasterCard will handle it all.
But my answer is NO and here’s why.
By closing the cards you already have open, you risk losing credit points.
You gain points for having a long history of credit. By closing old cards, you could lower your average length of credit.
You gain points for using a small portion of your available credit. This is calculated in two ways:
1) A low balance-to-limit ratio on an individual card.
2) A low balance-to-available credit ratio on all your cards.
If you close out all your store cards that you don’t need, you could hurt your score per #2 above. Your balance-to-available credit ratio could go up (depending on your remaining credit).
So, in general, if you have extra cards you don’t need, let them set open and unused. That way, you won’t risk losing points.
What If You Only Have Three Credit Cards?
If you only have two or three credit cards, that is enough and you do not need to seek out more. If you have two credit cards, plus one other trade line on your credit report, such as an auto loan or student loan, then that’s perfect. You have three accounts showing on your credit report, which is what you want for a conventional mortgage loan.
Best practice for a high credit score is to keep your balance-to-limit ratio low on all your credit cards. I suggest keeping it at 30% or less. Never go over 50%, because that will dock points. And never, ever max out your cards!
Thank you for reading this post. Feel free to pass it on to others via social media, because a lot of folks are using too much credit without realizing it is hurting their scores.